Wal-Mart's price-cutting a sign of trouble?

Published
12:00 am EDT, Sunday, April 11, 2010

NEW YORK -- Wal-Mart Stores Inc. says it has started a large round of price-cutting, but analysts on Friday questioned whether the changes are much different from the world's largest retailer's usual promotions.

Wal-Mart said Friday it is stepping up price cuts, although it wouldn't specify how much it is amping up its typical weekly discounts designed to lure customers.

The company will cut prices on about 10,000 items in stages, Wal-Mart spokeswoman Linda Blakley said, with several hundred introduced weekly.

The cuts started April 1 and span all products and include food products. Examples online include an Acer 10.1-inch netbook priced at $328, down from $348 and a pair of Miley Cyrus & Max Azria denim shorts priced at $10, down from $14.

Wal-Mart has been trumpeting the latest round of cuts with a TV, print and online campaign with the theme "It's Rollback Time at Walmart."

Wal-Mart's price cuts are nothing new. Because it is so big, it has long been able to pressure vendors to work with it to offer lower prices than competitors. But analysts said the latest cuts -- coming after a fourth-quarter report that showed traffic decreased for the first time in three quarters -- are a response to toughened competition and partly an aggressive media campaign.

"The gap on prices is nowhere near as wide as it once was, or as many consumers considers perceive it to be," said Wall Street Strategies analyst Brian Sozzi. "Wal-Mart just markets its 'everyday low price' message at a superior level relative to rivals."

In a note to investors on Monday, JPMorgan analyst Charles Grom echoed the sentiment, noting that the price advantage for an average shopping cart at Wal-Mart compared with three traditional grocers has narrowed to 12 percent from 18.3 percent since April 2009.

Aside from promotions at the end of the aisles, "it was somewhat difficult for us to discern what was a 'new rollback' versus what was already on sale and simply received updated signage," he said. "For example, while Wal-Mart had already carried DVDs for $5, the new rollback was entitled "was $7.50, now $5.00.'"'

Edward Jones analyst Matt Arnold said the price cuts are something Wal-Mart does often to drum up business, and the new wave of them is not much different.

"It's something the company has done pretty broadly. I don't think it's a departure from the trend," said Arnold.